Fonterra Rescues Organic Milk Suppliers

NEW ZEALAND - With Taranaki-based New Zealand Organic Dairy Farmers Co-operative (NZODFC) going into receivership, Fonterra Cooperative Group has offered the company's suppliers an opportunity to join Fonterra Co-operative.

16 March 2010

2 minute read

Oceania

Fonterra’s General Manager Milk Supply, Tim Deane, said: “The New Zealand dairy industry has a long history of co-operation, so this is a time to look for a practical solution so that no milk is dumped”.

Mr Deane said staff had been contacting NZODFC farmers and offering them the opportunity to supply Fonterra Co-operative. NZODFC’s Board recommended that Fonterra offered this to its farmers, he said.

Mr Deane said, the priority as always was to protect the interests of Fonterra farmer shareholders. NZODFC suppliers joining the co-operative would be treated the same as any new suppliers and be required to hold Fonterra shares or buy shares progressively on a growth contract to match their milk production (1 share per 1kg of milksolids).

“We’ve had a very positive response from NZODFC farmers – it’s a lifeline for them, that they will have someone to pick up their milk. And it’s also good for our Fonterra farmers – this will have a net benefit for Fonterra Co-operative and our farmers, bringing in new equity from shares and improving the company’s fixed cost recovery.

Mr Deane said NZODFC suppliers accepted for supply would initially be offered contracts to supply Fonterra for the remaining weeks of the 2009/10 season, receiving the Fonterra Milk Price minus 10 cents per kgMS (kilogram of milksolids), with no organic milk premium.

As with all new suppliers to Fonterra, for the 2010/11 season, those accepted to supply Fonterra would have the option to supply on a “fully shared” basis (buying Fonterra shares to match their milk production) or a “growth contract” (buying 1/3 of shares up front, 1/3 at the end of the first season, and 1/3 at the end of the second season). Organic share-backed milk would attract Fonterra’s prevailing organic premium providing it met all Fonterra’s organic supply criteria.

Mr Deane said he expected Fonterra to be collecting milk from the NZODFC suppliers, based from Northland to Bay of Plenty and in Taranaki and Manawatu, from this week. Each farm would need to meet Fonterra’s normal criteria for supply and also the provisions of DIRA (Dairy Industry Restructuring Act).

Fonterra has been praised by Federated Farmers.

Dairy chairperson, Lachlan McKenzie said: "Fonterra was under no obligation to do this but is acting in the best interests of the New Zealand dairy industry.

“Frankly this is industry leadership at the highest level.”